An outcome of the recent global recession has been a significant pickup in youth unemployment in many advanced countries. While horrific stories are found in United States and Europe, with youth unemployment rates reaching over 40 per cent in some areas, Ontario’s experience is not anywhere close, although still a concern.
Ontario’s current unemployment rate among 15-24 year olds is over 15 per cent, somewhat above the 14 per cent before the late 2008 recession stalled a more robust employment market. One can therefore conclude that the typically high youth unemployment rate is more of a structural rather than a cyclical problem.
It is not unusual for businesses to keep their trained experienced workers rather than hire young new workers at times of slow economic growth. Union negotiations also provide seniority to employed workers resulting in the more likely layoff of young employees when a downturn hits.
The more lifetime skills acquired by the young to match the needs of private and public employers, the more likely we can address the structural problems. Even with current weak markets, the almost stagnant labour force growth accentuates mismatching with some employers facing labour shortages.
It is critical that the education system graduates students with the skills needed by public and private employers. About 6 per cent of university graduates do not find jobs within 6 months of employment, an important share of the youth unemployment problem.
The dropout rate for high schools students can be unacceptably high, but the Ontario government in 2006 raised the mandatory school age to 18, which was a beneficial policy with important long-run economic and social benefits. Nonetheless, the non-completion rate within five years at the postsecondary education level is almost 20 per cent, which is remarkably high.
Minimum wage laws particularly discriminate against youth employment, especially in part-time markets that provide initial experience for students in the summertime. Although some studies have shown that minimum wage laws help protect low incomes, they do impact on jobs, especially for youth. U.S. studies also have shown a 10 per cent increase in the minimum wage increases the poverty rate by about three quarters of a percentage point.
Given the harshness of the global economic recession, one would expect that provincial governments would have been careful not to raise minimum wage rates. Instead, like other provinces, Ontario has rapidly increased minimum wages in the past three years from $8.75 in 2008 to the existing rate of $10.25. In other words, with the worst global recession since the Second World War, Ontario has seen fit to increase minimum wages by 17 per cent. This makes little sense.
Sometimes, it takes an economic recession to focus our attention on long-term structural problems. Youth unemployment is one of them.
Jack Mintz is the Palmer Chair in Public Policy at the School of Public Policy, University of Calgary